Equipment and Machinery

Equipment financing tips

To finance equipment you’ll want to know exactly:

  • what your credit score is,
  • how long you have been in business,
  • debt to income ratio,
  • how much you have in assets,
  • what you have available to provide as collateral,
  • net operating capital (minimum revenue requirements)
  • the cash flow of the business
  • length of time the equipment is needed,
  • your tax situation,
  • your company’s future capital needs related to future growth.

Factors that influence the price of your heavy equipment loan include:

  • The price of the equipment
  • Money down
  • The age of the equipment you're buying
  • Your personal and business credit history
  • How long you've been in business
  • Some types of leases allow for seasonal business fluctuations, lower monthly payments while a project is ramping up and revenue not yet being generated from the equipment and other specific circumstances your business may experience

Compare these factors to get your best loan:

  • Term of the agreement
  • Final funding amount paid to the vendor including taxes, freight, etc
  • Final Monthly payment including or excluding taxes
  • Number of payments or % down due up front
  • Fees such as doc fees and titling fees due up front
  • Buy out at the end of the agreement

Types of heavy equipment leasing transactions include:

  • fair-market value (FMV) lease transactions - operating or FMV lease allows the borrower to take lower payments but no depreciation
  • capped FMV leases
  • full payout loans - Full payout leases or equipment loans allow the borrower to take depreciation on the asset acquired
  • TRAC - A terminal rental adjustment clause lease (TRAC Lease) combines all the advantages of leasing while retaining the option to purchase the equipment at the end of the lease term at a pre-determined residual agreed to when the lease starts. Your monthly payments on a TRAC Lease are determined by the residual price you establish at the start of the lease. Depending on your cash flow needs, you can select a higher end-of-term residual amount for a lower monthly payment, or keep the end-of-term residual lower to pay more through the stream of payments.
  • FMV (Fair Market Value) - A fair market value lease may also be referred to as a true lease. This type of lease provides several flexible options at the conclusion of the lease agreement. Typically, the lessee will have the option to return the equipment to the lessor, renew the terms, or purchase the equipment for the fair market value.
  • Buck Out - A dollar buyout lease may also be referred to as a buck out lease. This type of lease guarantees the option to purchase the equipment for the amount of one dollar ($1) at the conclusion of the lease agreement. Customers that plan to keep the equipment at the end of the lease term typically select the dollar buyout option.
  • Capital & Operating - An operating lease is treated like renting—payments are considered operational expenses and the asset being leased stays off the balance sheet. There is no buyout of an Operating Lease.
  • In contrast, a capital lease is more like a loan; the asset is treated as being owned by the lessee so it stays on the balance sheet. A Capital Lease contains a bargain purchase option to buy the equipment at less than fair market value (set out at a predetermined amount: 10%, 15%, 20% etc).
  • Sale & Lease Back - If you have recently paid cash for some new equipment, RBFS can offer you cash for the equipment and convert your purchase into a lease. This is called a sale & lease back. If you have paid for the equipment within the last ninety days, RBFS can help you recoup your investment in the equipment and allow you to make low monthly payments. Certain credit guidelines must be met and certain documentation such as invoices and proof of payment must be provided as well.

In general

  • Avoid putting money down. a down payment is not required by most commercial vehicle finance companies.
  • Dont over-collateralize. a banker will often ask for additional collateral such as free and clear titles, pledging of your accounts receivables, buildings or even homes
  • 100 percent financing including the tax, title and license (TTL) is available. next time your bankers tells you they can’t finance your TTL, just politely say thank you and keep looking for one that will.

A good commercial equipment finance company should:

  • understand your needs and make quality recommendations;
  • process your loan request from a one-page credit application (in most cases);
  • approve your loan within one to two hours;
  • issue documents for your signature the same day the loan is approved;
  • fund your transaction within 24 hours;
  • Provide continued customer service and benefits for a long-term business relationship.
  • 0% down, low rates
  • Predictable, low monthly payments
  • Flexible plans & pay structures
  • Potential tax benefits*
  • Ability to bundle costs—pay for multiple equipment items & costs under one plan

if you plan on buying out early make sure to get there pre-payment policy in writing or at least in an email.

Lease payments can often be matched to the productivity the equipment produces

Loan vs. lease - A loan allows you to lock in your payments for the expected life of the asset, where as a lease provides lower expense for the expected time of use.

Is our guy a heavy equipment expert?
Equipment Experts —Some equipment finance companies are equipment experts and offer equipment specialties, which other sources of finance do not. Equipment finance experts have special relationships with manufacturers and distributors. Many equipment financiers specialize in certain equipment types or industry category, and with construction equipment in the top five equipment types financed,

Do you want me to draft email replies, like the ones we have from competitors?
We work with you to "right size" the equipment, by structuring co-terminus transactions or facilitating trade-ups

Does our guy handle disposals?
We handle the disposal and other ownership burdens of equipment when it is time to upgrade.

Equipment Disposal — Equipment disposal is another issue to consider before financing equipment. Most businesses don't have the resources or knowledge to efficiently manage and sell their old equipment. The convenience of having equipment managed by a third party, such as an equipment leasing and financing company, allows businesses to focus on core operations. With lease financing, for instance, you may essentially outsource the equipment management function so the financing company can handle its disposal or resale when it is time to retire the asset.

Why use our guy instead of the bank?
Bank loans are typically your best bet, but strict requirements and long processing times may be obstacles.

Why lease from our guy instead of from the vendor?
Leasing also is 100% tax-deductible as an expense leasing is “likely the preferable option” for equipment you plan to use for 36 months or less.

Does our guy manage assets?
Dependable Asset Management —Asset management is a key benefit of many forms of equipment finance, ensuring equipment in production isn’t under-utilized or over-utilized. Knowing where your equipment is being used, how much and when it is time to upgrade or update it—including disposal—is an important service that many financing companies offer. A good asset management program tracks equipment throughout its life cycle from delivery to its installation, use, maintenance and finally de-installation and disposition.

LEASE IT, OR TAKE OUT A LOAN?
Leasing allows you to rent equipment for a specific period of time rather than own it. After this term, you may have the option to purchase the equipment at a reduced price.

Pros:

  • Your business won’t get stuck with equipment that becomes obsolete as new technologies emerge.
  • Equipment leasing requires a lower initial outlay of cash than equipment loans.
  • The entire rental payment is tax-deductible.
  • Some leases include maintenance in the rental cost.

Cons:

  • Leases have no depreciation tax benefit.
  • Interest rates are generally higher than equipment loans.
  • Because the business is only leasing the equipment, you’ll have to budget for an ongoing rental expense or future equipment purchase.

Equipment loans are small-business loans specifically for the purchase of equipment.

Pros:

  • This is usually the equipment financing option with the lowest interest rates.
  • You’ll own the equipment outright. Once the loan is repaid, business owners who own equipment but need cash for other business purposes may opt to arrange a sale-and-leaseback agreement. This involves selling equipment to a lender in return for quick cash and then leasing it from that lender.
  • At tax time, the interest you’ve paid is deductible, and you’ll also enjoy a depreciation tax benefit.

Cons:

  • If the financed equipment becomes outdated, your business is stuck with having to sell or dispose of it.
  • A higher initial down payment is typically required for equipment loans than equipment leasing.
  • Only the interest portion of your payment brings a tax benefit.